Consumers remain smitten by luxury. Their urge to splurge was revealed in a 2013 study by The Boston Consulting Group, which found that consumers spent an annual aggregate amount of more than $1.8 trillion worldwide on items the respondents defined as luxuries. (See Exhibit 1.)

That figure far outstrips the approximately $390 billion globally that is usually cited as total annual sales of luxury goods such as apparel, cosmetics, watches, and jewelry. Of the $1.8 trillion in annual luxury spending BCG has identified, sales of luxury cars account for more than $400 billion worldwide, and the business of luxury experiences—from private airline services to five-star restaurants—is already worth almost $1 trillion of the total.

In this context, the luxury market continues to buck the slow- and no-growth trends typical of many other industry sectors. BCG forecasts that after the past two years of 11 percent annual growth, the personal-luxury-goods sector will expand annually at around 7 percent over the next few years, outrunning the increases in GDP seen in most economies.

But what those raw statistics don’t show is how kinetic the luxury industry really is. We still see launches of lustrous new brands, bold acquisitions, equity stakes purchased by private-equity firms, and even start-up activity. Recently, LVMH Moët Hennessy Louis Vuitton spent $2.6 billion to buy cashmere clothier Loro Piana and then acquired Nicholas Kirkwood, J.W. Anderson, and Hotel Saint-Barth Isle de France.

Many of the shifts in consumer behavior highlighted in our 2010 and 2012 reports on the global luxury market continue to propel the sector in more challenging directions—and in more complex ways. (For more about the trends see Luxe Redux: Raising the Bar for the Selling of Luxuries, BCG Focus, June 2012; and The New World of Luxury, BCG Focus, December 2010.) Emerging-market buyers are becoming prominent: together, Chinese, Brazilians, Russians, and Indians account for more than 30 percent of luxury consumption worldwide. Furthermore, experiential luxury continues to surge in emerging as well as mature markets; in China, for example, annual growth in luxury experiences tops 15 percent, highlighting both threats and opportunities for traditional luxury players accustomed to selling product there.

Brands must match such complicated changes with appropriate responses. BCG observes that success in luxury is linked increasingly to a brand’s mastery in four areas of change:

New consumers, different segments, and buying behaviors that are not easy to decode

A need to understand new geographies and the new specifics of cities as unique markets

New and innovative business models, requiring openness and cultural changes

Disruptions in marketing and selling enabled by new digital technologies

This report elaborates on those four dimensions of change, identifying where the leadership teams at luxury providers must place most of their energy and efforts in the future.

To conduct the study, BCG partnered with research firm Ipsos, polling roughly 1,000 affluent individuals in eight developed nations (Germany, France, Italy, Japan, South Korea, Spain, the U.K., and the U.S.) and four emerging countries (Brazil, Russia, India, and China).